The process of creating and managing an investment portfolio is known as portfolio management. A portfolio is the whole collection of financial assets. It can include stocks, mutual funds, bonds, cryptocurrencies, real estate, NFTs, and other collectables.
Active portfolio management
Active portfolio managers make decisions on investments directly. Investors pay a percentage of the assets that they handle for you. They strive to outperform the stock market index. However, as the portfolio management fees are high, it can reduce investment returns. You must pay 1% of your account balance or more annually as a client to cover advisory costs. It is one of the reasons why many investors choose passive portfolio management, which we will discuss below.
Passive portfolio management
In passive portfolio management, the manager uses the Index as a strategy for purchasing and selling stocks.
This can be accomplished by investing in the same securities that make up the benchmark index. The goal is to generate returns equal to the benchmark rather than outperform it. Unlike actively managed investments, passively managed investments do not require a team of professionals to monitor market performance continuously. This is due to the assets and security occasional changes.
Importance of Portfolio Management
Portfolio management suggests the best investment plan for each individual based on their income, budget, age, and risk tolerance. It reduces the risks associated with investing while also increasing the probability.
Portfolio managers understand their client’s financial needs and recommend the best and most unique investment strategy with the least risk involved. It enables portfolio managers to provide clients with customized investment solutions based on their needs and requirements.
The core idea is the trade-off between risk and reward. High levels of risk are linked to high returns, whereas low levels of risk are linked to low returns. According to the principle, investments can only result in higher returns if the investor can tolerate the possibility of risk. Therefore, a portfolio is something you should carefully create and maintain constantly.
Lastly, Don’t forget to align your investment with your faith. Upholding your faith in your investment would bring peace of mind without worrying about earning from unlawful (prohibited) sources. Musaffa has built a halal stock screener to help you align your investment with Islamic values. Feel free to sign up at Musaffa.com
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